City Co. of New York v. Stern

• Decision Date: 06 April 1940
• Docket Number: No. 11453.,11453.
• Citation: 110 F.2d 601
• Parties: CITY CO. OF NEW YORK, Inc., v. STERN.
• Court: U.S. Court of Appeals — Eighth Circuit

110 F.2d 601 (1940)

CITY CO. OF NEW YORK, Inc., v. STERN.

No. 11453.

Circuit Court of Appeals, Eighth Circuit.

March 18, 1940.

Rehearing Denied April 6, 1940.

M. J. Doherty, of St. Paul, Minn. (W. E. Rumble and Doherty, Rumble, Butler, Sullivan & Mitchell, all of St. Paul, Minn., on the brief), for appellant.

Benedict S. Deinard, of Minneapolis Minn. (George B. Leonard, Hyman Edelman, and Leonard, Street & Deinard, all of Minneapolis, Minn., on the brief), for appellee.

C. E. Phillips and Phillips, Sherwood & Hughes, all of St. Cloud, Minn., amicus curiae for Investment Bankers Ass'n of America, Minnesota Division.

T. O. Streissguth, of New Ulm, Minn., amicus curiae.

G. A. Youngquist and Fowler, Youngquist, Furber, Taney & Johnson, all of Minneapolis, Minn., amicus curiae.

Before STONE, WOODROUGH, and THOMAS, Circuit Judges.

THOMAS, Circuit Judge.

The question presented on this appeal is whether the appellee's cause of action is barred by the statute of limitations. The appellant, a New York Corporation and defendant below, sold to the plaintiff, a citizen of Minnesota, in four installments 20 shares of the capital stock of the National City Bank of New York coupled with a beneficial interest in the stock of the defendant corporation and in the stock of City Bank Farmers Trust Company. The first sale for 5 shares was made on February 4, 1929; the second for 5 shares on April 4, 1929; the third for 5 shares on July 12, 1929; and the fourth for 5 shares on October 16, 1929. This suit to recover the purchase price of the stock with interest was commenced in the district court November 12, 1937, more than six years after the dates of the sales. The right of recovery was based on the grounds (1) that the sales were illegal and void because the stocks were not registered as required by the Blue Sky Laws of Minnesota, Mason's Minn.St.1927, § 3996-1 et seq., and (2) that there was fraud, both actual and implied, in the sales. The defendant pleaded the statute of limitations and denied fraud. The plaintiff tendered into court the stock and the dividends received thereon; a jury was waived by stipulation; and the court found in favor of the plaintiff and rendered judgment for the purchase price of the stock and interest less the dividends. Stern v. National City Company of New York, D.C., 25 F.Supp. 948.

Section 9191 of the 1927 Statutes of Minnesota prescribes a six-year limitation for causes of action upon contract, upon a liability created by statute, and for relief on the ground of fraud "in which case the cause of action shall not be deemed to have accrued until the discovery" of the fraud.

Section 9200 of the statute provides that "* * * if, after a cause of action accrues against a person, he departs from and resides out of the state, the time of his absence is not part of the time limited for the commencement of the action."

The six-year period had expired before this action was begun; but the plaintiff contends, and the court held, that (1) the period of limitation was tolled by the departure of the defendant from and its residence out of the state since 1934, and (2) that for the cause of action based upon fraud the six-year period did not begin to run until the fraud was discovered just before the commencement of this suit.

The facts upon which plaintiff bases his claim that the six-year statute was tolled are not in dispute. The defendant was a New York corporation engaged in business as a dealer in bonds, stocks and other securities. It was licensed to do business in Minnesota as a foreign corporation in 1917, and on August 13 of that year it was licensed as a dealer or broker under the Blue Sky Law of the state. Pursuant to successive annual applications it continued to operate as such broker until August 9, 1933. In connection with its license as a broker defendant in compliance with law filed a power of attorney irrevocably appointing the Commissioner of Securities its attorney for the service of process in any action involving any transaction covered by the Blue Sky Law. Service in this case was made on the Commissioner.

On August 23, 1934, the defendant surrendered its license to carry on business in the state as a foreign corporation. In compliance with section 7494 of the Minnesota statutes it filed at that time in the office of the Secretary of State a "Resolution of Withdrawal" from the state and irrevocably appointed the Secretary of State attorney for the service of process upon it in any action arising out of any business done by it while licensed to do business in the state.

Having thus formally withdrawn from doing business in the state the defendant removed from the state its offices, agents and representatives which it had maintained there during the period covered by its license.

It is conceded that the sales were in violation of the Minnesota Blue Sky Law. Putting to one side the alleged fraud as a basis of recovery, it is settled that such sales are illegal and void and that there is an "obligation raised by law" on the part of the appellant "to refund the money procured by means" of such sales. Webster v. United States I. Realty Co., 170 Minn. 360, 212 N.W. 806, 807; Vercellini v. United States I. Realty Co., 158 Minn. 72, 196 N.W. 672; Drees v. Minnesota Petroleum Co., 189 Minn. 608, 250 N.W. 563. The only defense to the right to recover solely on the ground of violation of the Blue Sky Law is the statute of limitations. The statute began to run on the date of the sales. Burzinski v. Kinyon Investment Co., 192 Minn. 335, 256 N.W. 233, 236; Olesen v. Retzlaff, 184 Minn. 624, 238 N.W. 12, 239 N.W. 672, 78 A.L.R. 891. Unless, therefore, the six-year period was tolled by defendant's surrender of its license to do business in Minnesota and its withdrawal therefrom in 1934, the cause of action for recovery for violation of the Blue Sky Law was barred when this suit was commenced in 1937. Whether the limitation was tolled or not depends upon the proper construction and application of section 9200 of the 1927 Minnesota statutes, supra.

It is the contention of the plaintiff, that the tolling statute must be construed literally, and that when so construed the defendant by withdrawing from the state departed therefrom, that it resided out of the state thereafter and that it has been absent therefrom ever since. It is the contention of the defendant that the statute should not be construed literally but with reference to its intent and that when so construed the defendant remained in the state within the meaning of the statute so long as it was amenable to process therein by service upon its designated attorney, either the Secretary of State or the Commissioner of Securities.

Under section 9200 the period of limitation is tolled when the party liable "departs from and resides out of the state" during "the time of his absence." Literally construed we think there is no doubt that the defendant "departed" from the state when it ceased to do business therein, cancelled its license, filed its resolution of withdrawal and removed its offices and representatives from the state. Since that time it has been literally "absent" from Minnesota and, in so far as Minnesota is affected, it has thereafter "resided" in New York, the state of its creation. When it departed it left no officer or agent in the state with authority to represent it in any business transaction whatever. The Secretary of State and the Commissioner of Securities, its designated attorneys for service of process, are its agents in no such sense as to represent the continued corporate presence of the defendant in the State of Minnesota. They are merely the instrumentalities through which the defendant is subject to service in certain types of actions. Their presence in the state is not the presence of the corporation. A corporation is present in a state only when it is represented there by its officers or agents with some measure of authority to act for it. Kendall v. Orange Judd Co., 118 Minn. 1, 136 N.W. 291. In the case of Garber v. Bancamerica-Blair Corporation, 205 Minn. 275, 285 N.W. 723, 726, the Supreme Court of Minnesota quoted with approval from Gaboury v. Central Vermont Ry. Co., 250 N.Y. 233, 237, 165 N.E. 275, 277, the statement that "presence within the state imports the use of corporate power by corporate representatives." In this instance the powers of attorney filed by appellant designating the Secretary of State and the Commissioner of Securities as its attorneys for the service of process in a limited and restricted class of proceedings conferred no authority upon them as agents to use its corporate powers for any purpose.

Nor can the defendant be said to reside and be present in Minnesota merely by reason of the fact that it remains subject to the jurisdiction of her courts in certain classes of actions. In this instance the right of the state to acquire jurisdiction in personam over the departed corporation in a limited class of actions does not rest on the basis of a fiction of continued presence in Minnesota but upon the defendant's express consent to accept service through designated attorneys. Neirbo Company et al. v. Bethlehem Shipbuilding Corp., Ltd., 308 U.S. 165, 60 S.Ct. 153, 84 L.Ed. ___, Decided November 22, 1939; Oklahoma Packing Co. et al. v. Oklahoma Gas & Electric Co. et al., 60 S. Ct. 215, 84 L.Ed. ___, decided January 15, 1940; Pennsylvania Fire Ins. Co. v. Gold Issue Mining Co., 243 U.S. 93, 37 S.Ct. 344, 61 L.Ed. 610; Morris & Co. v. Skandinavia Ins. Co., 7 Cir., 81 F.2d 346; Bagdon v. Philadelphia & Reading Coal & Iron Co., 217 N.Y. 432, 111 N.E. 1075, L.R.A.1916F, 407, Ann.Cas.1918A, 389; Magoffin v. Mutual Reserve Fund Life Ass'n, 87 Minn. 260, 91 N.W. 1115, 94 Am.St.Rep. 699; McClamroch v. Southern Surety Co., 193 Iowa 249, 187 N.W. 41; Restatement of Conflict of Laws, § 91. It arises out of a contract between the defendant and the State of Minnesota made by the state for...